End Government Bailouts of SAA

The price is paid by consumers who see their choices taken away and the millions of poor South Africans who see funding diverted from pro-poor projects to subsidise the rich. One tragic case of unessary government interference in the economy, alongside Eskom, is SAA.

Billions in existing budgets allocated to SAA should have been redirected to the poor who deserve the right to enter our economy off the back of a social safety net with skills and dignity, as Nobel Prize winning economist Friedrich Hayek argued. Some estimate every South African could have received a housing opportunity with the millions taken to subsidize wealthy fliers and fat cats protected by government.

The R30 billion we know of has subsidized SAA at the expense of the poor and undermined competition. Whenever a new entrepreneur started to succeed because South Africans chose those airlines services, the poor saw billions redirected to subsidize SAA to drive new entrepreneurs out of business.

One such entrepreneur was Blacky Komani, the CEO of former South African airline 1Time. 1Time went into liquidation in 2012, and Ivo Vegter wrote at the time that “another private-sector competitor in the airline market looks set to collapse in a tough market, under sustained predatory behaviour from the state-owned giant, South African Airways”.

In 2005 SAA was given a R45 million fine for “abusing its dominant position in the domestic airline market”, the largest ever fine in the history of the Competition Act. Anti-competitive behaviour from SAA and its subsidiary Mango has helped drive many private competitors out of business including Flitestar, Sun Air, Nationwide, Velvet Sky and 1Time. It is extremely difficult to compete against SAA when they have virtually unlimited access to capital in the form of government bailouts.

Above: Airline 1Time was driven into bankruptcy

New entrants into the airline market, FlySafair and Skywise have spoken out against anti-competitive government practices. Skywise is calling for a roundtable discussion between the airline industry and top level government departments to address unfair practices that undermine competition in the airline industry. FlySafair Chief Financial Officer Elmar Conradie echoed these statements, saying that it was “in the interests of the country and its travelling public to reduce competitive barriers and remove unfair competition”.

According to a recent Travelstart survey, fare reductions of up to 38% have been recorded on some of the routes operated by FlySafair, with demand increasing by as much as 132%. This shows the benefit of free and fair competition in a market; companies compete to outperform each other with better service and lower prices, while customers have a range of options to choose from.

The billions taken from the poor must end and entrepreneurs must be able to enter the market. SAA should continue as our national carrier in the skies, but instead of the government taking money from the poor to subsidise it, the best entrepreneurs should be allowed to bid and take it over so it can be run in a way that delivers maximum benefit to consumers without trampling over the poor.

Furthermore, as Temba Nolutshungu argues, the poor should be given shares in SAA on its transfer to entrepreneurs, along with all other state monopolies that survived the end of apartheid and which continue to take from the poor to subsidize the rich two decades into democracy. According to the contemporary of the late Steve Biko, Mr. Nolutshungu shows such a move is not only just but economically empowering as it provides direct ownership, and thus power, to the people.

It is time for entrepreneurs to call for an end to state bailouts of South African Airways, allowing a free and fair market place where SAA must compete against private companies. By not bankrolling SAA with taxpayer money it will be forced to compete one-on-one with other airlines and as a result consumers will enjoy lower prices, better services, and have their taxes go towards social services.

Above: One of South Africa’s new low-cost, independent airlines

Quotes about SAA

“Government meddling and intervention have been a normal practice, creating instability and making it impossible for the airline to turn the corner. SAA also has been set back by frequent turnover at the chief executive and board level.” – Centre for Aviation

“The preference is for the airline to become profitable in its own right but the reality is the government has never provided SAA management with the flexibility to implement the required restructuring.” – Centre for Aviation

“For years SAA has been stuck in a scenario in which it was unable to fully restructure because of government meddling but faced the unrealistic expectation of becoming viable.” – Centre for Aviation

“South African consumers will obviously benefit from more aggressive competition at the bottom end of the market.” – Centre for Aviation

“The country’s state carrier, South African Airways (SAA), has been struggling to keep its fleet in the skies with a crippling debt of $1.5 billion and has had to receive a couple of state sponsored bailouts, including a recent 6.5 billion rands ($560 million) guarantee to keep liquidators off its back” – AFK Insider

“Privatization has been a thorn in the flesh for the South African government for over two decades now, but it is time the Jacob Zuma led government let go of some inefficient parastatals” – AFK Insider

“SAA is a perennial loss maker. Over the financial period from 2000/01 to 2010/11, SAA posted a cumulative loss of R11.664bn rand” – Free Market Foundation

“The billions of rand used to date to bail out the losses incurred by SAA is money that the government could have spent on improving the lives of the poor and maintaining national infrastructure” – Free Market Foundation

“SAA has cost taxpayers at least R12-billion over the last decade. The opportunity cost of the money being swallowed by SAA is staggering. Considering the cost of one RDP house, this money could have been used instead to build approximately 218,000 houses which would have considerably improved the lives of hundreds of thousands of poor South Africans who still have no adequate shelter.” – Free Market Foundation